Key points of investment
Bank of Communications's profit resilience was highlighted in 24Q1, and interest spreads rebounded beyond expectations.
Overview of the data
Bank of Communications's net profit for 24Q1 increased 1.4% year on year, up 0.8 pc from 23A; revenue remained flat year on year, down 0.3 pc from 23A. The Bank of Communications had a defect rate of 1.32% at the end of 24Q1, a slight decrease of 1 bps from the end of 23Q4; the provision coverage rate increased by 2pc to 197% compared to the end of 23Q4.
Profitability resilience highlighted
Bank of Communications's net profit for 24Q1 increased 1.4% year on year, up 0.8 pc from 23A; revenue was basically flat year on year, down 0.3 pc from 23A. In terms of driving factors, interest spreads have greatly improved, and the non-interest growth rate has declined month-on-month. (1) Interest spread: The average daily interest spread for 24Q1 was 1.27%, up 5 bps from month to month. (2) Non-interest: In 24Q1, non-interest fell 3.5% year on year, and the decline was 11pc wider than 23A, mainly due to a 1% year-on-year decline in other non-interest income, which was 21pc larger than 23A. Looking ahead, considering that interest spreads between banks are still facing downward pressure, subsequent revenue growth trends still need to be observed, and profits are expected to maintain positive growth.
Interest spreads bucked the trend and rebounded
The average 24Q1 daily interest spread was 1.27%, up 5 bps from month to month, exceeding market expectations, mainly due to improved debt costs.
The 24Q1 debt-side cost ratio (at the beginning and end of the period) improved by 8 bps to 2.56% month-on-month, mainly due to the release of deposit interest rate reduction dividends, compounded by the Bank of Trade's initiative to increase debt cost control.
Looking forward to the future, due to LPR interest rate cuts, transaction interest spreads are facing some downward pressure.
Stable asset quality
At the end of 24Q1, the poor delivery rate dropped slightly by 1 bp to 1.32% month-on-month, and the poor index remained stable. Attention rate and overdue rate increased slightly by 2 bps, 1 bps to 1.53% and 1.39%, respectively. Forward-looking indicators fluctuated slightly, mainly related to fluctuations in retail asset quality. At the end of 24Q1, the Bank's personal loan attention rate and overdue rate were +11bp, +18bp to 1.36% and 2.11%, respectively. The main pressure point was the rise in credit card risk in the industry. Credit card attention rate and overdue rate at the end of 24Q1 were +34 bps and 61 bps month-on-month, respectively, to 4.15% and 6.34%. In terms of provision, at the end of 24Q1, CCB's provision coverage rate was +2pc to 197% month-on-month, and the level of provision increased steadily.
Profit forecasting and valuation
Bank of Communications's net profit is expected to increase by 1.28%/4.27%/6.92% year-on-year in 2024-2026, corresponding to BPS 13.11/13.94/14.86 yuan. The current price corresponds to 0.52/0.49/0.46 times PB. The target valuation is PB0.60x in 2024, corresponding to the target price of 7.86 yuan/share, with a current price space of 15%, maintaining the “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.